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Dos and don'ts of budget reform.

Officials from Texas, Mississippi and Arizona, three states in the throes of budget reform, warned lawmakers from across the nation that revamping a budget process is not a panacea for tight economic times.

"Budget reform will not prevent revenue shortfalls," warned Speaker Tim Ford of Mississippi during NCSL's Annual Meeting in San Diego. "It will not eliminate budget cuts. It will not allow for more spending. And it will not totally eliminate structural deficit problems.

"What it will do is greatly improve preparations for the revenue shortfalls. It will minimize and reduce budget cuts. It will reduce the roller coaster pattern of spending. It will limit appropriations for nonrecurring funds, and it will focus more attention on structural deficit problems."

Mississippi reform was built on the budgeting process already in place. A reform law enacted in 1992 limited the Legislature to budgeting only 98 percent of the money available, forcing lawmakers to reserve a 2 percent cushion of funds. The state established performance measures and created expense reduction teams that studied state agencies and programs. "If we gave them the money, we wanted to know that they did what they promised," Ford said. "And there was in-depth program evaluation by the legislative audit committee."

Before reforming the budget process, Albert Hawkins of the Texas Legislative Budget Board advises an examination of the approaches taken in other states and an understanding of the concepts behind those actions. "Always remember to modify the system to fit the unique circumstances and requirements that exist in your state," he emphasized.

Texas has been one of the states on the cutting edge of performance-based budgeting, setting goals for state agencies.

Arizona's reforms involve a bifurcated approach of mixing annual and biennial budgets. By FY 1996, 14 of the most "volatile agencies"--those subject to periodic and unforeseen changes in expenses, such as social services--which make up approximately 90 percent of the state budget will be on annual budgets. The rest of the state agencies and programs will be put on biennial budgets. Arizona also adopted a four-year pilot program for budgeting based on performance evaluations of various agencies.

A few dos and don'ts for state budget reform laid out by Ford, Hawkins and Ted Ferris, staff director of the Arizona Joint Legislative Budget Committee, were:


* Adopt realistic expectations. * Involve all the key players, including the chairmen of budget committees, staff people, the executive branch. * Study other states; review their budgeting processes and any reforms adopted and determine what effects, good and bad, those reforms have had. * Use a pilot approach; select agencies that would be willing to institute changes in their budget systems. * When linking funding to performance of state agencies, define and describe a mission for each agency; develop evaluation criteria and focus on results. * Prioritize each program funded. * Consider application of new concepts on a selective basis. * Provide more training for all lawmakers on finance and budgeting. * Plan to develop more precise data if a performance-based budgeting system is adopted.


* Don't repeat the mistakes that other states have made. * Don't have preconceived ideas that an entirely new system will be better. * Don't go overboard with schemes that sound impressive. * Don't abandon solutions that are working; try to build on those. * Don't try to do a massive overhaul of the budget system all at once.

In Texas, reforms have given lawmakers the chance to make decisions through a "structured, rational approach toward identifiable goals," Hawkins said, rather than on a crisis management basis. Tying performance and achievement to the amount of funding makes agencies more accountable to the legislature and more focused on results.

"It placed more weight on-priority of services and dollars based on agency plans," he said.

Hawkins added that a pitfall of the Texas change was that there was "no fallback if the new system crashed and burned."

Mississippi's problem, like many other states, was its boom-and-bust economic cycle that created unexpected highs and lows for budgeting. As a result of those cycles, the state woefully underfunded its reserves. "The legislature spent every dollar every year of the unappropriated balance," Ford said. "The needs were so great we had to spend every dime to meet those needs."

Since adopting reform measures, Mississippi has managed to increase reserves to 7.5 percent of general fund revenue.

As for budget reform as a whole: "Reform of the budget process is not an end. It will always be evolving, state by state," noted Ferris of Arizona.
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Author:Gordon, Dianna
Publication:State Legislatures
Date:Oct 1, 1993
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